The cheap printer and the expensive ink: 13 business models and the numbers that reveal them.

A few years ago I bought a printer on sale. It was so cheap that I almost felt guilty. Two months later the ink ran out, and a new set of cartridges cost almost as much as the whole printer.

My first reaction was to think I had been cheated. My second, with an analyst's mindset, was different: the manufacturer never intended to make money on the printer. It wanted to make money on the ink. The printer was just the way in.

That has a name: it is a business model. And here is the uncomfortable question for you, as a manager or business owner: do you know exactly how your business makes money? Not how much it sells, but at what moment, with which customer and why that sale is profitable.

Four questions that define a business model

At the University of St. Gallen, Oliver Gassmann and his team studied hundreds of companies and found that almost all of them repeat a small number of patterns. Four questions are enough to describe any of them:

1. What do you offer the customer?
2. Who do you offer it to?
3. How do you produce and deliver it?
4. Why is it profitable?

The fourth question is the one most often forgotten, and it is precisely the one you measure with data. Below I present 13 of these patterns, with examples you already know and the three key performance indicators (KPIs) that tell you whether each one is doing well or not. I grouped them into five families to make it easier to recognize yours.

How to read the cards: each indicator shows the signal that it is going well and the signal that it is going badly. If you or your analyst want the calculation, open "See formula". Reference figures are guidelines only; each company should set its targets based on its industry and its history.

Family 1: earning on repurchase

These models give up profit on the first sale to secure the following ones. Their risk is always the same: that the customer does not come back.

Razor and Blade: they give you the machine and charge you for the coffee

You buy a capsule coffee machine at a good price. Six months later you have spent more on capsules than you paid for the machine, and you will keep buying as long as you use it. The manufacturer accepts a small profit, or even a loss, on the equipment, because the profit is in every repurchase. Printers do the same with ink, and Gillette does it with replacement blades.

Subscription: the customer pays before using

Microsoft 365 stopped selling its software once and started charging for it every year. Dollar Shave Club delivers razors to your door every month, and Blacksocks does the same with identical black socks. The customer pays a fixed fee and the company gains something very valuable: revenue it can predict.

Flat rate: all you can eat

A buffet charges the same to someone who eats one plate as to someone who goes back four times. Unlimited mobile plans and all-inclusive hotels work the same way. The business works because customers who consume little make up for those who consume a lot.

Family 2: giving away to sell

Freemium: most people do not pay, and that is fine

You listen to Spotify for free, with ads between songs. You design in Canva without paying anything. You hold Zoom meetings until the free version cuts off your call. In all three cases, the company gives away the basics, hoping that some users will want more and pay for it.

The key is that the paying minority covers the cost of serving everyone else. If very few make the jump, the model becomes a very expensive act of charity.

Family 3: connecting others

These companies make money by getting others to work together. What they sell is the connection, and they hold little or no inventory of their own.

Peer-to-Peer: the business of introducing two strangers

Airbnb does not own the homes. Uber does not own the cars. eBay does not own what is sold on its site. All three connect a person who has something with another person who needs it, and charge a commission on every exchange.

Revenue sharing: growing with other people's sales force

Apple keeps a percentage of every app sold in its App Store. YouTube shares advertising revenue with the creators who fill the platform with videos. Amazon pays a commission to any website that refers a sale. In every case, external partners bring customers or content in exchange for a share of the revenue.

Crowdsourcing: the community does the work

Every time you report an accident on Waze, you are working for Waze for free. LEGO fans propose new sets on LEGO Ideas and others vote on which ones get made. Wikipedia exists because thousands of volunteers write it. The company obtains ideas, content or data it could never pay for with its own payroll.

Family 4: removing intermediaries and costs

These models do not invent a new product. They make money by removing someone or something from the path: the distributor, the store or the employee who serves the customer.

Direct sales: from the manufacturer to your home

Dell grew by building computers to order and selling them without stores. Avon has sold through catalogs for decades, with representatives who go door to door. Tesla sells its cars without dealerships. By removing the intermediary, the company keeps that margin and also gets to know each customer firsthand.

E-commerce: the store that never closes

Amazon, Shein and the online store of the small business around the corner share the same logic: without a physical store, fixed costs go down and reach goes up. The extra advantage is that every click can be measured, from the visit to the payment.

Self-service: the customer does the work and pays less

At IKEA you find the box in the warehouse yourself, take it home and assemble the furniture. At a fast-food restaurant you stand in line, pour your own drink and pick up your tray. At the supermarket you scan your groceries at the self-checkout. In exchange for that work, you pay a lower price.

Digitization: when selling one more unit costs almost nothing

Printing and delivering a newspaper costs paper, ink and fuel; sending it to one more digital reader costs almost nothing. The same happened with the bank branch versus the banking app, and with the printed book versus the e-book. When products move from atoms to bits, the cost of each additional unit falls almost to zero.

Family 5: charging for the intangible

In these models, what is most valuable cannot be touched: a feeling or a piece of data.

Selling experiences: the coffee is just the excuse

A coffee at Starbucks costs several times what it costs to make at home. What the customer pays for is the armchair, the Wi-Fi and an hour of quiet work. Disney does not sell admission tickets; it sells a day the family will remember. Whoever buys a Harley-Davidson also buys a lifestyle and a club to belong to.

Leveraging customer data: data can also be sold

Google does not charge you to search; it charges the advertiser who wants to appear when you search. Amazon recommends products based on what people similar to you bought. The supermarket loyalty card gives you points in exchange for knowing what you buy, when and how much. In all three cases, customer information becomes an asset that generates revenue.

The mistake I see in almost every company

After more than ten years building indicator dashboards, the mistake I see most often is measuring the same things regardless of the model: total sales, sales against last year, sales by salesperson. These numbers matter, but they are rarely the first to warn you that something is wrong.

Think of a subscription company that celebrates a record number of new customers in the quarter. Sales go up and the report looks green. But if nobody looks at the cancellation rate, nobody notices that more customers are leaving than arriving. By the time total sales reflect it, the problem is months old.

Every model has its own weak point, and that is where you need to take the temperature.

If you look closely at the cards, you will see a pattern: there is almost always one indicator for growth, one for profitability per unit and one for retention or quality. Growing without profitability destroys value; being profitable without keeping customers is living on borrowed time. That is why three well-chosen numbers are enough to know whether a business is doing well or not.

What about a hardware store, a distributor or a veterinary clinic?

Small and mid-sized companies do not appear on lists of famous cases, but they combine several of these patterns every day. This is how they look in practice, and these are the numbers worth putting on the management dashboard:

Hardware store: counter sales, self-service and credit

A hardware store combines direct sales at the counter with some self-service in the aisles, and it almost always sells on credit to contractors and companies. The billing system tells you how much you sold, but money hides in other places: in inventory that does not turn over, in products that are missing when the customer asks for them, and in invoices that nobody is collecting.

• Real margin by product line and brand, not just sales by product line.
• Inventory without movement at 3, 6, 12 and 24 months: capital frozen in the warehouse.
• Overdue receivables by age and by the salesperson who granted the credit.

Warning sign: credit sales grow every month, but overdue receivables grow faster than sales.

Distributor: customer repurchases

A distributor lives on customers who order again: stores, repair shops and hardware stores that restock every week or every month. It is a repurchase business, even if nobody calls it that, and its risk is the same as in the first family: that the customer stops ordering without warning.

• Customers you are losing: who used to buy frequently and stopped, based on their own purchase history.
• GMROI: how much margin each colón invested in inventory generates, by product line.
• Orders delivered on time and in full, because an incomplete order is a sale the competition takes.

Veterinary clinic: the consultation brings the customer in; food and vaccines bring them back

A veterinary clinic is very similar to the Razor and Blade model. The consultation starts the relationship, and the steady profit lies in what repeats: the bag of pet food that runs out every so often, and vaccines and deworming treatments with known dates.

• Pet food repurchase cycle by customer: when the bag will run out and who to remind.
• Active versus inactive patients, and vaccination appointments already on the calendar.
• How full the veterinarian's schedule is, and the mix of services and products.

Warning sign: customers keep coming for consultations, but they buy pet food somewhere else.

Your company probably combines several models

Netflix is a subscription, because you pay every month. It is a flat rate, because you watch as much as you want. It is digitization, because it replaced the video store. And it leverages customer data, because its recommendations come from what you watch.

The same is true for a small business. A repair shop that sells spare parts and also offers a monthly maintenance plan combines repurchase and subscription. Identifying which patterns your company uses is the first step toward knowing what to measure.

The 13 models and their indicators at a glance

Keep this table. It is the short version of the whole article: three indicators per model.

Download the table (PNG)

From data to decision

You do not need fifty reports. You need the three numbers that reveal your business model, up to date and in one view, so you can review them every Monday and decide.

At My Data Intelligence we help general managers identify those indicators and turn them into a management dashboard that updates itself, connected to the billing, inventory and accounting systems your company already has.

Frequently asked questions

Reference: the business model patterns come from the Business Model Navigator by Oliver Gassmann, Karolin Frankenberger and Michaela Csik (University of St. Gallen). The reference figures on the cards are guidelines only.

Emanuel Rojas Cubero
Founder of My Data Intelligence. Heredia, Costa Rica.